All Forum Posts by: Jay Hinrichs

 Residential transition loan AKA fix and flip

Hi Ethan, ignore everything that was said on this thread. A lot of people are intelecualizing, moralizing, and complicating things. This can be much simpler than people are making it. 

First off, it is kind of your grandmother to offer to lend you money at 5%. It shows she believes in you and wants to help you be successful. Thank her for that. 

Secondly, you need more experience and understanding to become a good real estate investor. With a savings rate of $2000 - $2500 a month you have shown that you can manage your personal finances successfully so great job!

This would be my suggestion, continue to go to real estate meetups in your area and start connecting with other investors on a regular basis. If possible, invite a real estate investor to lunch each week and pay for their lunch. Ask them how they got started and what type of deals they are doing currently and what the numbers look like. After doing this for a few months and having gotten to know several (ideally 20 or more) investors, ask one of them that you felt most aligned with regarding the type of real estate they are doing if you can lend to them short-term on their next deal and if you could see the process of how they invest. Make sure your interest in the property gets recorded with the title company and then learn as much as you can about the process. 

After doing this on 2 or 3 deals, you will be much better prepared to recognize a deal, how to get into a deal, what's important and what's not important in a deal, and how to make the deal profitable.  

You are getting too much feedback on how people buy houses the normal way and get loans the normal way. Well your regular average person that buys a house the normal way gets rich very slowly if at all. Skip all of that. Learn how to find really good deals, and then get into a really good deal and turn that deal into a great place for you. 

This is an idea of what I would do specifically if I were in your current situation after having dove head first into learning, networking, and participating in deals.

1. find a house from a wholesaler that is an older build but that doesn't need things like electrical upgrades or things like that. Look for a house that is around 1800 - 2200 square feet where you can change a 3 bedroom home into a 4 or 5 bedroom 2 or 3 bathroom home. This would make an ideal situation for a house hack/rent by the room situation which would exponentially build your income quicker. 

2. Purchase the house with a hard money loan from a lender you met over the past year of doing deals with successful investors. Get a 90% or higher loan with rehab reimbursement draws where you can get money draws from the lender to reimburse what you spend on repairs. This will make it so you can recycle your rehab money and make it go much further.

At this time you should have an additional 20k - 30k in savings so you should be at about 50k or more to work with on the purchase and rehab. 

3. After the repairs are complete and you have started renting the property by the room, look into either refinancing as a primary home or get a DSCR loan if the primary home loan lender is giving you a hard time.

If done well, you should be at only a 75% - 80% loan to value and you would have taken your $50,000 in cash and turned it into $100,000 or more of equity. You should be able to live in one of the rooms for free and cash flowing $500 or more a month on the property.

After doing this, go back to your grandmother and show her the deals you have been a part of, what you have learned, and the deal you put together. Then ask her if she would like to be your money partner on deals and go start crushing it. Outline the partnership expectations in paper, continue to build your support system, don't get over leveraged, and improve your craft. 

I would encourage you not to use grandma's money at the beginning until you are already doing your own deals successfully. It makes it too easy to use easy money and it doesn't push you into finding really good deals. It would likely make you into a mediocre investor. So don't do that. Focus over the next year at building the investing rocket ship and then let your grandmother provide the fuel.

I've also been told that Kiavi has halted all RTL funding in FL by several sources. As best as I can tell, this is factual. I also saw something that they are stopping all bridge funding nationwide on stabilized properties. It's either perm financing (DSCR) or nothing.

I have directly spoken with 9 or 10 private lenders and institutional RTL lenders in my two markets in the past two weeks. The universal expectation right now is that there will be increased experience requirements and higher borrower contribution requirements (lower LTVs) on RTLs for purchases going forward.

On the primary mortgage market side, we're hearing rumors of coming updates to DU and LPA that will be more conservative on approvals for investment property loans.

Ive been expecting this for a while. I know I've mentioned this before on here, but I have seen too many deals in the past year or so that are being strung together by hopes and wishes. A lot of investors are buying doors just to buy doors - there isnt much economic justification behind it, all with way too much risk layering. 

My guess is that the institutional lender programs that offer 90%+ flip funding to 1st-time investors are about to evaporate. My other guess is that DSCR loans are going to start requiring higher ratios for upper LTV programs, probably 1.15+.

Great question (this is not legal advice)

If a seller no-shows at closing and decides to back out without a valid contractual reason, they’re typically in breach of contract. Here’s how it plays out:

• Escrowed Funds: Any funds wired by your lender (hard money or private) will not be released. The title company holds them in escrow, and they stay put until both parties authorize release or a legal judgment tells them what to do. So no, it doesn't sit there indefinitely, but it can get tied up for a bit.

• Recourse: You (as the buyer) have the right to pursue what's called specific performance—basically, you can take legal action to force the seller to perform (i.e., sell the property per the contract terms). That’s usually the route when it’s a clean deal and the buyer still wants the property.

• Time = Money: The bigger issue is that during this delay, you may incur costs—interest on your short-term lending, inspection fees, appraisal, etc. Some contracts will let you go after the seller for those damages, but that takes time and legal muscle.

• Word of Caution: Always make sure your lender’s funds don’t get wired too early—some wait until the seller signs first for this exact reason. It’s a small risk, but when it happens, it gets messy fast.

Escrow holds the funds tight, you're not losing the money (just access to it temporarily), and your best move is usually a combination of legal pressure and negotiation to get the deal back on track—or compensated.

@Jay Hinrichs I haven't posted anything else other than the original. No need for you to keep posting negative comments. Also, these investments are not high risk and are 506(b)

@Jaycee Greene 

I agree with your advice and something I am and have been thinking hard about. 

Yes this is in my area and where my family/friends are located. My wife and I have moved all over the US with Hospitality jobs, however have now moved back to this area to be close to our family and set some roots.

Hi Jonathan,

I have a deal that I can get you involved in for passive income. Let me know if you are interested. It is a 462 unit apartment complex in TX. Reach out if you have any questions. 

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.